What the commodities cycle taught us in 2025

Treating commodities as one asset class was expensive this year. Correlations between energy and metals broke down repeatedly. A trader who bought the whole complex on inflation fears found that some parts rallied while others sold off, often for entirely different reasons. 2025 was a reminder that commodities are a category, not a strategy.

We break the year into three phases and pull out the risk lessons that carried across all of them. The first phase, early in the year, was dominated by supply concerns in energy. Geopolitical tensions and production decisions kept oil and gas volatile while metals remained relatively calm. Momentum in energy masked weakness elsewhere.

The second phase saw a sharp rotation. As central banks signalled a slower path on rates, precious metals caught a bid while energy flattened. Industrial metals, tied more closely to manufacturing data, lagged. Traders who had sized positions based on the earlier correlation structure were caught on the wrong side of the shift.

The third phase brought weather and harvest issues into soft commodities. Agricultural markets moved on their own calendar, driven by planting reports and shipping conditions. These moves had little connection to oil or gold. A diversified commodities book suddenly looked less diversified than it had on paper.

The unifying lesson was about position sizing and correlation assumptions. When cross-commodity correlations fall, concentration risk rises even if the nominal weights look balanced. We now encourage traders to stress-test commodity portfolios using lower correlation assumptions and wider drawdown ranges.

Looking ahead, we expect the fragmentation to continue. Each commodity submarket has its own drivers, and treating them as interchangeable is likely to remain costly. The traders who performed best in 2025 were those who stayed flexible and sized each trade on its own merits rather than on the story of the broader complex.